BAAC cuts the fat, net profit may reach B5bn

7:15 p.m. EST, May 2, 2012|Chatrudee Theparat, The Bangkok Post

The Bank for Agriculture and Agricultural Cooperatives (BAAC) is considering a number of measures, including cutting non-performing loans, to offset the impact of a programme that will suspend debt payments for farmers.

The state bank is confident that the measures will keep it afloat and will allow it to maintain a net profit in the range of 4.5 billion to 5 billion baht a year.

The cabinet last week told the BAAC to implement a debt-moratorium programme that will suspend principal repayments for clean-record borrowers for up to three years.

The programme, to run from this September to August 2015, is expected to cost the BAAC 6 billion baht a year.

But BAAC president Luck Vajananawat said the bank plans to implement a number of measures to offset the loss of payments from farmers benefiting from the programme.

Among them is the reduction of non-performing loans to 3.25% of total outstanding debts from 5.34% now within three years, a move that could help lower reserves by 3.5 billion baht a year.

BAAC will also expand lending to new borrowers to 80 billion baht from the 73 billion baht previously targeted and allocate 1.5 billion baht of gross profits a year over three years to its credit account.

Expenditures will be cut by 300 million baht a year by increasing efficiency.

Mr Luck said to stabilise the bank's financial position, the BAAC's board has sought approval from the Finance Ministry to increase capital by 10 billion baht over the next three years.

The capital increases will maintain the bank's capital adequacy ratio at no less than 10%, as required by the Bank of Thailand, according to Mr Luck.

BAAC reports that up to 2.94 million debtors with a combined 396 billion baht in outstanding debts are eligible to join the programme.

He said these borrowers make 12 billion baht in debt payments each year.

He said the programme could benefit the economy as these customers will have more disposable income.

As for the farm price intervention programmes, the BAAC says it unlikely to be affected. This is because the Finance Ministry has allocated a budget of 30 billion baht to repay the bank for the cost of these programmes.

More budget will be set aside in the future to repay the bank for its participation in the programmes, including the rice pledging programme.

In 2011 and 2012, 6.8 million tonnes of main crop entered the scheme, excluding rice from the South.

It estimated that a loss of around 17-20.4 billion baht was absorbed because the purchase price of 15,000 baht per tonne was 2,500-3,000 baht higher than market prices.

The 13 mortgage schemes implemented by the government since 2004 have incurred a shortfall of 103 billion baht. The BAAC has proposed that the Finance Ministry allocate budget to compensate it over five years.